Transformation of legacy landscape in the insurance world


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Evolving business models decrease the distance between customers and providers. The need for direct and easy communication and the transparency between the two increases, and products silos are curtailed. The insurance industry is struggling with a multitude of applications that require extensive maintenance and have mediocre capabilities. This white paper aims at helping organizations understand the issues involved in effective management of the existing legacy systems.

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Transformation of legacy landscape in the insurance world

  1. 1. Transformation of Legacy Landscape in the Insurance World Transformation of Legacy Landscape in the Insurance World Ritu Gupta NIIT Technologies White Paper
  2. 2. CONTENTS Introduction 3 Legacy Systems 3 Challenges Associated with Legacy Systems 3 Legacy Transformation 3 Advantages of Legacy Transformation 3 Transformation Challenges 3 Conclusion 7 About the Author 8 About NIIT Technologies 8
  3. 3. Insurance industry is undergoing a phenomenal transformation. The continuous sluggishness of top line growth is steering the industry towards newer business models and requisite technologies to support them. Time-to-market, though a perpetual need, has today become a real imperative for businesses to break through this stagnation. Bringing the consumer closer to the business, providing facilities to easily access information, transact, and ensuring continual commitment from distributors are some of the key growth factors that drive this industry. To support this business change, the underlying IT landscape is also undergoing a rapid transformation. The legacy landscape in particular, is rapidly changing as these platforms are inherently constrained and unable to support business simplification and enterprise-wide data interpretation, Insurance companies have typically been among the earliest adopters of automation. In an industry where almost all the participants offer identical products, providing better customer service is undoubtedly one of the most important differentiating factors to gain competitive advantage. IT capabilities, be it mainframes, client-server, multi-tier or other emerging technologies, have automated all insurance processes and information available at finger tips. In this race towards automation, insurance carriers have become heavily dependent on proprietary, homegrown systems. Traditionally, applications were developed around specific lines of business, thereby leading to incredibly siloed systems and processes. Large-scale consolidation within the industry has further complicated the issue, with a large number of disparate systems basically performing the same task. Besides, from a technology perspective, most of these legacy systems are poorly documented and irregularly updated. Systems are unable to cater to the needs Introduction A legacy system is an old method, technology, computer system, or application program that continues to be used - typically because it still caters to the users' needs, even though newer technologies or more efficient methods of performing the task are available. Legacy Systems A few of the typical challenges faced by organizations using legacy systems are enumerated below: • Legacy systems which have been developed in the past using older technologies do not just include the software and the hardware but also processes and procedures (policy-centric and customer-centric, bureaucratic, fast and easy to use) that are difficult to change • These systems become repositories of business knowledge that is not available anywhere else • These systems are business-critical and are maintained not only because of the information repository but also because it is too risky to remove them Challenges Associated with Legacy Systems 3 of emerging business models. Evolving business models decrease the distance between customers and providers. The need for direct and easy communication and the transparency between the two increases, and products silos are curtailed. The insurance industry is struggling with a multitude of applications that require extensive maintenance and have mediocre capabilities. This white paper aims at helping organizations understand the issues involved in effective management of the existing legacy systems.
  4. 4. “Most legacy systems are written in COBOL [code], and nobody teaches in COBOL anymore. The maintenance of legacy systems is going to get tougher as this generation that knew that language moves on into retirement. There's significant risk in the older systems, as the employees that maintained them retire or move on, taking their operational knowledge with them. Every company that has these large systems eventually is going to have to do something with them.” Robert Fullington, EVP and CIO of Life of the South (LOTS), Jacksonville, Florida (USA) 4 In a typical legacy system set-up, some distinct or identifiable features can be noticed: • Hardware: Mainframe or mid frame based • Application Software: Usually written in obsolete programming languages • Application Data: May have large instances of redundant, incomplete and inconsistent data • Business Processes: Software structure and functionality may not support enhancements/ changes • Business Rules: May be implicit and embedded in the system software • Support for Software: Since software is maintained in-house, suppliers may no longer be in business, or may not support the system • People: The resources/ users who were associated with the system may no longer be working or alive (in some cases); thus constraining the knowledge about such systems These inefficiencies have forced insurance players to clearly define and implement legacy transformation strategies. Legacy transformation is the process of bridging the gap between legacy and strategic architectures. It is cost-effective, time-efficient and risk adverse. The transformation process consists of understanding and documenting the existing system; decomposing the application into data; presentation and processing logic; creating and extracting reusable components; and if desired, converting the legacy code into Web compatible languages. Legacy Transformation Advantages of Legacy Transformation Transforming a legacy system offers organizations a number of distinct advantages including: • Reduced operational cost • Usage of current business processes and modern technology • Minimal dependency on resources associated with legacy systems • Comprehensive documentation of system with complete knowledge of processes • Ease in deployment and enhancement of functionality Transformation Challenges One of the key challenges in legacy transformation is data and business rules management. Both involve significant participation of resources managing the data and the code, in-depth understanding of the processes along with the rules that govern them and the associated data. Only then synchronous transfer of data and rules to the end state system(s) is ensured. While it may be relatively easy to access data, getting access to system specific knowledge like the embedded business logic and the associated rules is the real challenge. In fact, even with respect to data, comprehending system specific knowledge is a major task. Most legacy applications in the insurance industry have substantial data related issues like inaccuracy, incompleteness and redundancy. Information pertaining to business rules and logic defining the processes and data is typically available either in the form of documents or through the users’ expertise. A typical scenario that legacy transformation programs confront is the lack of documentation (or minimal documentation) and inability to access or translate system experts’ knowledge into usable information. Experts leaving the system (retired/left), paucity of communication, or lack of cooperation by the experts as they feel threatened by the transformation program are some of the challenges with respect to the documentation of the knowledge from the experience of the experts. Thus for the success of any transformation, it is imperative to have a robust knowledge management and code comprehension framework. The transformation team needs tools to extract system knowledge from the code, structure to ensure effective knowledge transfer from the experts, templates to record the extracted information and transferred knowledge, and a learning plan to ensure that all the system knowledge is imbibed by them.
  5. 5. Developments in legacy transformation tools and techniques provide businesses the opportunity to review their legacy portfolio. When the requirement is to transform a single legacy application, the choice of direction is decided by the quality of the application and the availability of off-the-shelf products to replace it. Generally one (or more) of the following four alternatives can be used by insurance companies to deal with legacy transformation. 1.Leave the Application as is There are some cases where there is no requirement to change the existing application. For example: The insurance company might no longer offer a particular product and the policies currently serviced may all be near maturity. Hence the company can decide to continue with the existing application without investing more on these lines of business or the systems handling them. 2.Modify or Upgrade the Application Depending on the need and the extent of the change desired, the insurance company may decide to either modify the features of the existing application or upgrade it to newer technologies for better service. Some of the initiatives that an insurance company can take include: a. Web enabling services: This activity involves re-engineering the interfaces and screen components without disturbing the existing legacy database (non-invasive). It is usually a preferred alternative, if the insurance company is having budgetary constraints and intends to appeal to a wider audience and enhance service levels. Transformation StrategiesTransformation Strategies Most transformation programs last for a period of 2-3 years. During transformation, an organization may face lack of knowledge continuity due to changing organizational priorities. This leads to reallocation or attrition of resources. Knowledge institutionalization, through a resilient knowledge management framework, can once again play a significant role in reducing dependency on the knowledge repositories, by transporting an expert’s knowledge into it. This repository, supported by a strong competency building framework, can ensure that the new set of resources become productive quickly, thereby reducing the impact of reallocation or attrition. Another challenging area in insurance legacy transformation is the data itself. As mentioned earlier, insurance data on old legacy systems is infested with inaccuracy, insufficiency and redundancy issues. Understanding and then transforming this data clearly into the new system is any transformation team’s nightmare. Even though all organizations face the same challenges, they tend to throw different sets of data transformation issues. An iterative approach to data transfer can play a pivotal role in ensuring that the lessons learnt from resolving issues in earlier iterations can be effectively utilized in subsequent iterations. Also, since the amount of data to be converted is huge, the usage of tools that enable the process of transformation is extremely important. Typically, a large number of off-the-shelf Extract Transform Load (ETL) tools have been positioned to address the same. In this case, the transformation rules are complex, since these tools have been built with data warehouse as their final destination. In case of data migration, the rules need not be complex, as transformation is aimed at cleaning the data and not transforming and drawing business intelligence out of it. Thus, it is usually preferred that simpler data conversion tools are used for this purpose. Another recommended method for data conversion is “Policy Life Cycle Mirroring” – in this method, based on the history of all transactions in the source system, a new policy is processed in the target system if it allows backdating of transactions. 5
  6. 6. 6 3. Replace Existing Application Insurance applications need to change over a period of time. The reasons for the change may include regulatory changes, updates to products terms and conditions. Existing applications may not be in a position to handle all such changes and hence require a replacement; either through a bespoke development or through an off-the-shelf product. Also, if there has been a merger or an acquisition where the businesses being serviced are the same, the insurance player(s) may embark upon consolidating the two businesses and thus the underlying applications as well. In such business consolidation scenarios, the organization may decide either to transport the requisite functionality of one (or more) application(s) to the other or replace one (or more) application(s) with a new functionally and technically richer application. 4. Retire (shut down) an Application This option is chosen when the company decides to exit a line of business and all the associated policies have matured. For example, certain policies that were specifically designed for a specific purpose/ business segment may no longer be sold or serviced (World War II soldiers!) and hence they are no longer needed. Or a company may decide not to offer a product specifically designed for a state/ target segment that it no longer wants to service. Maintaining these applications would be a superfluous cost and hence need to be shut down. Retiring is one of the most difficult options to exercise, considering its impact. Multiple processes (to access the application) have to be redesigned, certain data may have to be preserved for as long as the company exists, and then there are regulatory needs that mandate some reports. This option results in decommissioning of the application. It is also a future step for option one (where the legacy application is supporting a closed book of business and is being maintained as it is till the last policy matures) and last step for option three (where one or more applications are getting replaced). Once an application is shut down, it is decommissioned and all its requisite repositories (business rules and/or data) are transferred either to another application(s) or to an archival system. b. Componentization and Integration: The existing application is untouched. However, the business rules and the processes are converted into Component Object Model (COM) objects with better functionalities and on-premise deployment with straight-forward integration into existing applications. It is generally adopted by insurance companies that are in a rapid expansion mode, through mergers or acquisitions. All the above options lead to consolidation and/ or decommissioning of some or all of the legacy applications. Decommissioning is the practice of removing a service (application/ database/ platform) while retaining access to the business-critical data stored within the system. Post decommissioning, a legacy system is deemed unfit for performing the regular operations. The data residing in the decommissioned system may or may not be migrated to the target system. In either case, continued access to the data is very critical. By decommissioning redundant, unnecessary or technologically obsolete systems, companies achieve tangible benefits. At the same time, there are certain issues such as: • Companies typically decommission systems or applications to reduce the infrastructure costs and mitigate operational risks. Some scenarios where decommissioning has been frequently recommended is when a business is thinking of selling/ exiting a division or line of business • Mergers and acquisitions bring with them older/ redundant systems • Inability of existing systems to accommodate newer technological demands • Scarcity of resources having knowledge of legacy systems Consolidation, on the other hand, is the process of identifying similar processes in discrete systems and integrating them into a process that represents almost all the features in these systems. Consolidation results in generating powerful set of tools and features that enable users to have a unified view of information stored in multiple systems and locations. Consolidation also enables insurers evolve new systems to provide scalable, consistent, and reformed data that can be used by enterprise applications and business processes across various administration systems. Typically, consolidation involves decommissioning of one or more system(s). Based on client’s requirements, an appropriate strategy to transform legacy applications has to be devised. These strategies depend on issues like transfer of assets with/ without data, database and interface compatibility, transition support, post transition training etc.
  7. 7. Certain specific needs, an organization may have, to transform legacy applications have been listed below: a. Replacement of the legacy system with a new system b. Enhancement of existing functionalities c. Decommissioning of the system However, the core elements of strategies are components of data and business rules. If the data is relatively clean and policy history is not maintained as live data, “point in time” data migration is recommended. However, if the data is plagued with inconsistencies, redundancies and the system allows backdating, “recreate from issue” or “policy lifecycle mirroring” (wherein all the transactions from policy issue to date are recreated through an alternate source of input), it is more suitable for active policy conversions. Many insurance companies still depend on legacy systems to handle key processes like claims and policy administration. These applications are reliable and are capable of delivering what they were originally supposed to deliver. Hence most companies are reluctant to take-up any replacement activities. Certain issues like (a) limited technical support, (b) inflexible business rules, (c) Conclusion 7 over-burdened databases, (d) hard to learn interfaces, (e) difficulty in integration and, (f) high maintenance costs are some of the issues that insurance companies face with their legacy systems. Despite these drawbacks, insurance companies have been apprehensive about replacing their legacy systems due to costs and risks involved. However, the escalating competition, ever-increasing expectations from customers and regulatory mandates has prompted many players to consider transforming their legacy applications. Legacy transformation usually takes two standard modes—consolidation and/ or decommissioning. It would not be an exaggeration to state that a successful legacy transformation is all about successful data and business rules migration from original/ source system(s) to new/ target system(s), ensuring that the interests of all concerned parties (users and managers of old and new systems) are addressed. The key ingredients to achieve this objective are knowledge acquisition from the system using tools and templates; knowledge acquisition from experts using knowledge transfer structures and templates; knowledge institutionalization; and iterative data transfers using appropriate tools or methodologies.
  8. 8. Ritu Gupta heads the Insurance practice at NIIT Technologies’. She has over 17 years of experience, including 11 years in insurance domain and about seven years in management consultancy. She has been instrumental in setting up of Vantage Center of Excellence at NIIT Technologies. She has a post-graduation degree from the Indian Institute of Management, Bangalore. About the Author NIIT Technologies is a leading IT solutions organization, servicing customers in North America, Europe, Asia and Australia. It offers services in Application Development and Maintenance, Enterprise Solutions including Managed Services and Business Process Outsourcing to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. With employees over 7,000 professionals, NIIT Technologies follows global standards of software development processes. Over the years the Company has forged extremely rewarding relationships with global majors, a testimony to mutual commitment and its ability to retain marquee clients, drawing repeat business from them. NIIT Technologies has been able to scale its interactions with marquee clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into extremely meaningful, multi-year "collaborations. NIIT Technologies follows global standards of development, which include ISO 9001:2000 Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information security management certification. Its data centre operations are assessed at the international ISO 20000IT management standards. About NIIT Technologies A global IT sourcing organization | 21 locations and 14 countries | 7000+ professionals | Level 5 of SEI-CMMi, ver1.2 ISO 27001 certified | Level 5 of People CMM Framework NIIT Technologies Ltd. 47 Mark Lane, London, EC3R 7QQ Ph: +44 20 7002 0700 Fax: +44 20 7002 0701 Europe NIIT Technologies Pte Ltd. 31 Kaki Bukit Road 3 #05-13 Techlink Singapore 417818 Ph: +65 6848 8300 Fax: +65 6848 8322 Singapore NIIT Technologies Ltd. Corporate Heights (Tapasya) Plot No. 5, EFGH, Sector 126 Noida-Greater Noida Expressway Noida – 201301, U.P., India Ph: +91 120 399 9555 Fax: +91 120 399 9150 India NIIT Technologies Inc. 1050 Crown Pointe Parkway Atlanta, GA 30338, USA Ph: +1 770-551-9494 Fax: +1 770-551-9229 Americas D_07_040412 Write to us at